When Interstates Paved the Way the Construction of the Interstate Highway System Helped to Develop the U.S

ECONOMIC HISTORY

by h a i l e y p h e l p s When Interstates Paved the Way The construction of the Interstate Highway System helped to develop the U.S. economy

n 1939, the New York World’s Fair offered attendees a time became essential, yet interstate roads were still primarily traveling look at the “World of Tomorrow.” In the General made of dirt, and the trucks caused substantial damage to IMotors Futurama exhibit, visitors toured an enormous them. For example, according to the U.S. Federal Highway scale model of what a city would look like in 1960. Futurama Administration (FHWA), roads in New York that cost simulated a low-flying airplane journey; the 18-minute ride $11,000 per mile to build in 1912 were estimated to cost gave guests a bird’s-eye view of 36,000 square feet of minia- $32,000 per mile to repair at inflated 1918 costs. Despite tures, including more than 500,000 buildings, 1 million trees these costs, it soon became evident that the cost savings of of 13 different species, and nearly 50,000 motor vehicles. shipping by truck outweighed the costs of repairing roads. Probably the most advanced technology in the diorama was During the Great Depression, the Public Works the remote-controlled 14-lane multispeed interstate highway Administration, part of President Franklin D. Roosevelt’s system, which introduced the general American public to the New Deal program, advanced national road construction, concept of a network of expressways connecting the nation. created jobs, and improved the economy by building thou- Today, there are several interstate highways in the United sands of miles of roads. These roads were part of the U.S. States that boast 14 or more lanes. But these mega high- Numbered Highway System, a paved network of two-lane ways were not built overnight; it took many years of work to roads, carrying a U.S. route number that crisscrossed the receive congressional approval and decades more to construct United States. One of the most famous highways constructed the network that millions of Americans travel on every day. during this time was U.S. Route 66, a 2,448-mile stretch of The improved mobility that the interstate highway system road that linked Chicago to California. In addition to bring- provides has done more than make road trips easier — it has ing farm workers to California from the Midwest, many contributed to the growth of the U.S. economy. Americans enjoyed driving on Route 66 simply for the sake of traveling and seeing the sights along the way. FROM DIRT TO PAVEMENT As passenger and truck traffic on the U.S. highway system grew, however, it became apparent that these roads were In the early 20th century, Henry Ford and his assembly beset with deficiencies of design, efficiency, location, and line made the Model T car affordable to working-class safety. And there was an increased interest in an upgraded citizens, which increased mobility exponentially. As cars interstate network. In 1939, around the time of the world’s became more accessible, there was an increased need fair, Roosevelt addressed Congress with a call to action for greater funding for car-friendly roads. In the 19th for the development of “a special system of direct interre- century, most roads were constructed for horses and gional highways ... to meet the requirements of the national wagons out of dirt or gravel and generally used to travel defense and the needs of peacetime traffic.” But following short distances. To accommodate the Model T craze and the attack on Pearl Harbor in December 1941, the United meet the demand for better roads, Congress passed the States entered World War II, and plans for a national high - Federal-Aid Road Act in 1916, which granted $75 million way system were mostly delayed. to states for road construction and improvement. It was Following World War II, the need for efficient transporta- the first legislation that provided federal aid to the states tion networks became a priority again as the United States for their highways. But most states’ road construction emerged as a world leader in goods production. To jumpstart projects were delayed or slowed in 1917 as labor and this process, Roosevelt signed the Federal-Aid Highway Act of capital were shifted to help the war effort, leaving few 1944, authorizing a 40,000-mile national system of interstate resources available for other projects. By the end of World highways. Budget legislation did not provide any funding War I, only five federal-aid projects had been completed, programs for building such a system, however, so develop- totaling just 17.6 miles of road. ment of the interstates would have to wait. Railroads were initially the primary method of shipping freight, consumer goods, and people across states. LAUNCHING A NEW PROGRAM The increased number of shipments required by the war, however, caused the railroads to become congested. One The development of the interstate highway system as we solution to this problem was to ship some of the cargo know it today can be attributed to President Dwight D. on trucks. So interstate transportation of freight by truck Eisenhower. As a military officer during World War II, he

24 econ focus • second/third quarter • 2021 Share this article: https://bit.ly/interstate-highway was impressed by the German auto- bahns and wanted a similar highway system for the United States. When he became president in 1953, he revived interest in constructing a national interstate system. On June 29, 1956, Eisenhower signed the $25 billion Federal Aid-Highway Act of 1956, sanctioning a highway system (later named the Dwight D. Eisenhower System of Interstate and Defense Highways) of 41,000 miles of highways, with strict standards, including nearly 2,000 miles of already-completed toll roads, with the goal of being completed by 1975. In 1968, Congress increased the total length to 42,500 miles. The interstate system was initially Interstate 81 under construction in Botetourt County, Va., in June 1964. designed to serve three main purposes: to connect the principal metropolitan areas, cities, and cared about the local quality of life, against city planners, industrial centers; to serve the national defense; and to who saw interstates as a key to growth. connect at suitable border points with routes in Canada and In a recent working paper, Philadelphia Fed economists Mexico. Eisenhower additionally stated four key princi- Jeffrey Brinkman and Jeffrey Lin found evidence that ples of its construction, which remain to this day: to reduce these revolts were inspired by the diminished quality of fatalities and injuries; to keep the roads maintained and in life from freeway side effects such as noise and pollution. good condition to reduce vehicle operating costs; to permit a Additionally, they showed that downtown neighborhoods means of quick evacuation, military mobilization, and move- closer to newly opened freeways exhibited less growth in ment of goods; and to manage congestion. population and income than neighborhoods farther away To raise money for the construction of roads on a national from the freeways. They concluded that freeways likely scale, Congress created the Highway Trust Fund, which played a significant role in the decentralization of U.S. cities. funded 90 percent of construction costs. This fund generated revenue through federally imposed user fees on motor INTERSTATES AND THE ECONOMIC ENGINE fuels, increasing the price of a gallon of gasoline by one cent. States would pay the remaining 10 percent. By the As the miles of constructed interstate increased, so did the summer of 1957, most states had begun construction of their movement of freight and people. The interstate connected segments of the interstate system. Today, more than 46,700 people and places throughout the country to rail yards, miles of interstate highways are open to traffic. The Dwight marine ports, and airports, improving economic efficiency D. Eisenhower System of Interstate and Defense Highways and productivity. Hard-to-travel areas, such as mountain- serves most large U.S. urban areas and 49 of the 50 states, ous regions, became accessible and this opened up all but Alaska. east-west travel and transport, directly adding to the Up until 1956, most Americans viewed a national highway economic development of those regions. In rural areas, system favorably. When the bulldozers came in 1957 and the interstate highway system made less expensive land 1958, however, some urban residents questioned how well more accessible and encouraged development in places big highways and big cities mixed. In 1959, San Franciscans that had experienced limited economic growth prior to staged the first large-scale rejection of urban freeway being connected to a larger system. A 2019 study by Taylor planning in the United States, known as the “freeway Jaworski and Sergey Nigai of the University of Colorado transportation revolt,” a series of protests and petitions. As a result, the Boulder and Carl Kitchens of Florida State University found of San Francisco Board of Supervisors halted further freeway that the construction of the Appalachian Development construction, leaving the Embarcadero Freeway and most Highway System, a system of state, U.S., and interstate department of the planned freeway network permanently unfinished. In routes in the Appalachia region, led to national economic the following years, negative reactions to freeway construc- gains of nearly $54 billion ($22 billion in the Appalachia virginia : tion increased, and there were anti-freeway protests in over region) and boosted incomes in that region by reducing the image 50 cities. Oftentimes, these revolts pitted city residents, who costs of trade.

econ focus • second/third quarter • 2021 25 Productivity in the United States has increased since the development of the interstate highway system, and there is

ECONOMIC HISTORY ECONOMIC evidence that the interstates are one reason why. According to research by the FHWA, “From 1950 to 1989, approxi- mately one-quarter of the nation’s productivity increase is attributable to increased investment in the highway system.” By improving transportation between regions, the interstate highway system has helped to expand the national market for goods as firms can supply their products to much larger geographical areas at lower costs. Other research has examined the effect that interstates have had on domestic and international trade costs. In a recent NBER working paper, Jaworski, Kitchens, and Nigai President Dwight D. Eisenhower opens an extension to the George Washington found that removing the interstate highway system would Memorial Parkway in November 1959. reduce real GDP by $619.1 billion (3.9 percent), and that 25 percent of that loss would result from reduced interna- programs collectively known as the Federal-Aid Highway tional market access. Additionally, they quantified the value Program. Research published in NBER Macroeconomics of each of the 20 longest interstates; two of the most valu- Annual by San Francisco Fed Economists Sylvain Leduc and able cross the Fifth District, namely I-40 and I-95. Daniel Wilson examined current federal public infrastruc- “These transnational routes are important because they ture investment and found that federal highway grants given connect the most cities and the most major markets to to states boost economic activity in the short and medium one another,” says Kitchens. “The routes that are import- term. Overall, each dollar of current federal highway grants ant are not only those that are transnational, but also those received by a state raises that state’s annual economic output that connect ports. Because of this, I-5 [which runs from by at least $2. Canada to Mexico on the West Coast] and I-95 are extremely valuable.” TAPPING THE BRAKES One reason that I-95 is one of the most valuable segments of the interstate highway system is that it is connected to Today, as in the 1950s, the interstate system has critics. For the Port of Savannah, Ga., otherwise known as “The Quiet example, some people are calling for the “defederalization” of Giant.” Twenty-five thousand tons of cargo are transported the transportation system to change the incentives created by through this port every day, making it the fourth busiest in its current top-down, federally driven decision-making. In a the nation. Between 7,000 to 9,000 trucks enter and leave 2017 working paper, Santiago Pinto, a Richmond Fed econo- this port daily with goods on their way to retail stores across mist, examined the economic implications of shifting from an the Southeast, Midwest, and Gulf Coast, 80 percent of which institutional arrangement in which transportation decisions are distributed on I-95. are made in a centralized way to one that gives a larger role When Eisenhower pitched the interstate system to to local or regional agencies. He found that in a decentralized Congress, he justified the cost of the project as a national arrangement, local transport authorities tend to overinvest security measure, but he knew the real value of the invest- in transportation that connects the city’s residential areas to ment was the effect it would have on the U.S. economy in local employment centers — compared to a centralized system museum

& the short and long run. Dissertational research by Daniel — but tend to underinvest in transportation that connects Leff Yaffe of the University of California, San Diego esti- cities to one another. library mates that the output effects of building the interstate A handful of defederalized transportation authori- highway system has had a long-run relative multiplier of ties, including the Chicago Transit Authority in Illinois, presidential

1.8, meaning that every dollar spent on interstates has led the Metropolitan Transportation Authority in New York, to $1.80 of additional economic output. In 1991, one year and the Jacksonville Transportation Authority in Florida, before its completion, the FHWA issued the final cost esti- exemplify Pinto’s model of a decentralized transportation eisenhower . d

mate of the interstate system at $128.9 billion, over five authority. “An important contribution of these agencies is times the original estimated cost in 1959 — $27 billion — that transportation decisions would tend to be coordinated dwight adjusted for inflation. Assuming the long-run multiplier is among participants, so they would internalize their impact ; 1.8, the interstate highway system has generated over $283 on the local areas,” he says. archives billion in additional economic output. Another consequence of the interstate was that many Since the interstate highway system was completed in small towns, centered around old state roads and U.S. routes, national 1992, the federal government has continued to provide were left in the dust after the construction of larger inter- :

funding for interstates to states through a series of grant state roads. These small towns suffered financially after the image

26 econ focus • second/third quarter • 2021 construction of the interstate because people were able to physical size. “In a world where people can only walk or ride bypass these towns in favor of the faster route of transporta- a horse, cities cannot be very big, but in a world with widely tion. One example of a small town negatively affected by the available transit and cars, cities can grow a lot bigger,” says interstate is Peach Springs, Ariz. In the 1880s, Peach Springs Duranton. was built as a watering station for steam locomotives. The The interstate connected suburban and rural commu- railroad necessitated the construction of train facilities, nities to city centers, but it divided and destroyed urban housing for railroad workers, a terminal, and a hotel. During neighborhoods, particularly in minority communities. the next few years, the town’s several businesses catered to For example, within the Fifth District, neighborhoods in travelers and railroad workers. Additionally, Peach Springs Southwest Washington, D.C., were sacrificed to construct advertised itself as the first gateway to the Grand Canyon I-395, forcing those residents to move to other areas. In to attract tourism dollars. When Route 66 was built, Peach an article published in 2007 in the Quarterly Journal of Springs prospered and built motels, diners, and gas stations Economics, Nathaniel Baum-Snow of the University of to attract travelers. But when I-40 was built in the 1960s and Toronto’s Rotman School of Management studied the effects 1970s, it bypassed Peach Springs entirely. Of the 32 active of interstate highway construction on population in central businesses in Peach Springs before the bypass in 1978, only cities. His results showed that between 1950 and 1990, two businesses remain in the town today: a grocery store the population of U.S. central cities in the United States and a motel. declined by 17 percent, on average, despite the overall popu- The development of the interstate highway system led lation growth of 72 percent in metropolitan areas. His model to economic growth, but it has had mixed results for the estimated an 18 percent population reduction for each addi- quality of life for the people who use it. Some argue the tion of a new highway though a central city. His findings time savings from reduced commuting times has translated showed that if the interstate highway system had not been into additional time for preferred activities. On the other built, central city populations would have grown by about hand, some argue that the time savings from using inter- 8 percent, on average, implying highways played a substan- states are reduced or eliminated because of induced traf- tial role in suburbanization in the United States. fic from induced highway demand — that is, increasing the Today, many cities are reconsidering highway policies that supply or quantity of roads makes people want to use them pushed elevated interstate highways through central cities more. Research published in the American Economic Review and caused damage to housing, businesses, and neighbor- by Gilles Duranton of the University of Pennsylvania and hoods. Since the 1970s, at least two dozen U.S. cities have Matthew Turner of Brown University examined the effect contemplated removing central-city elevated expressways. of lane kilometers of roads on vehicle-kilometers traveled So far, a few cities have successfully removed or modified (VKT) in U.S. cities. They found that VKT increases propor- such highways: Boston replaced its Central Artery with a tionately to roadway lane kilometers for interstate highways, network of tunnels, known as the Big Dig; New York’s West and that the sources for this extra VKT are increases in Side Highway is now a street-level boulevard; and Harbor driving by current residents, increases in commercial traf- Drive in Portland, Ore., is now a waterfront park. fic, and migration. “The provision of roads essentially does nothing for congestion,” Duranton explains. “When new CONCLUSION roads are built, they fill up very quickly, and travel condi- tions do not change.” In the 65 years since the creation of the interstate high- In some respects, the construction of the interstate has way system in the United States, the growth of the econ- played a positive role in U.S. urban areas, despite initially omy and the quality of life and mobility of Americans has being excluded from early stages of interstate planning. substantially increased. Yet the future has turned out to be The interstate highways increase mobility in urban areas by more complicated than the one presented by Futurama; the reducing travel times for cars, buses, and trucks, while less- transportation arteries presented in miniature in 1939 have ening traffic congestion on noninterstate roads. The addi- delivered challenges as well as benefits after being brought tion of the interstate also allowed cities to expand their to life. EF

READINGS Duranton, Gilles, Peter M. Morrow, and Matthew A. Turner. Karas, David. “Highway to Inequity: The Disparate Impact of the “Roads and Trade: Evidence from the U.S.” Review of Economic Interstate Highway System on Poor and Minority Communities Studies, April 2014, vol. 81, no. 2, pp. 681-724. in American Cities.” New Visions for Public Affairs, April 2015, Herzog, Ian. “National Transportation Networks, Market Access, vol. 7, pp. 9-21. and Regional Economic Growth.” Journal of Urban Economics, March 2021, vol. 122, pp. 1-17.

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